IMF representative in Cyprus Vincenzo Guzzo has outlined the opportunities and challenges of Cyprus on the road to long-lasting growth during his speech at the 6th Economic Congress of Alpha Bank, held here today.
On challenges faced by the Cypriot economy, Guzzo referred to the Non-Performing Loans (NPLs), public sector debt and to the fact that Cyprus is not an easy place to do business.
As he said, IMF`s conservative projection for GDP growth of 2% in 2017-2020 is due to these three major challenges facing the Cypriot economy, noting however that these challenges can be turned to opportunities. He said that this would be far better than the nearly -2% recorded in the crisis years 2009-2014, but well below the average growth rate of 5% seen during 1988-2008.
He said that Cyprus continues to recover from the crisis, adding that in 2015, GDP grew by 1.6%, after a cumulative contraction of 10.9% over the previous three years, while in the first quarter of 2016 growth accelerated to 2,7%.
The recovery in economic activity is broad – based, with tourism and professional services still being the main contributors to growth, he stressed.
Guzzo noted that concerted efforts on both NPLs and private sector overleverage would likely support a sustainable economic recovery, adding that dealing with the NPL problem effectively, not only would have an impact on the balance sheet and the capital of the banks, but it would also have broader implication for the economy.
He also said that encouraging the securitization of loans, within an appropriate legal and regulatory framework, would help banks deal with the NPL problem and eventually, unlock additional sources of funding for the economy.
The IMF representative stressed that ensuring sustainable public debt would allow adequate fiscal space for productive public investment spending, which in turn would support long -lasting growth.
He further said that continuing to privatize state-owned enterprises would allow better and less expensive services for the population and attract foreign direct investment which again can bring jobs and increase liquidity in the economy.